Analysis
These appeals arose from the a ‘brazen fraud’ by which Allseas Group SA was defrauded of €100 million. After the fraud took place, there was an attempt to launder the proceeds through the client account of a London firm of solicitors, Notable Services LLP, whose partners included Mr Landman. Police intervention secured the return of €88 million – the present proceedings concerned attempts to recover the remainder of this sum from Notable, Mr Landman, Mr Louanjli (a bank employee who provided information to Notable) and LLB Verwaltung, the bank who employed him (”the Bank”).
In addressing the numerous appeals by the various parties the Court of Appeal grouped them into three main categories:
(1) Issues relating to liability for dishonest assistance in a breach of trust;
(2) Issues concerning causation; and
(3) Issues concerning vicarious liability.
Issue 1 – Dishonest assistance
The Appellants on this issue (Group Seven and Equity Trading Systems, which was formerly known as Larn Ltd) asserted that the Judge was wrong to conclude that Mr Landman was not liable as an accessory for dishonestly assisting breaches of trust by Larn and breaches of fiduciary duty by Mr Nobre (a director of Larn) when Mr Landman procured or otherwise helped to bring about payments made from Notable’s client account in November 2011.
The only matter in issue was whether Mr Landman’s conduct satisfied the requirement of personal dishonesty by him. Morgan J held that this crucial requirement had not been established in relation to the relevant breaches of trust and fiduciary duty, because he found that Mr Landman did not know (or have blind-eye knowledge) that the money in the client account was not beneficially owned by Larn and was not at Larn’s free disposal. In the absence of such knowledge, it was insufficient that Mr Landman did act dishonestly in facilitating the payments made out of the client account, that his actions formed a central part of the assistance, or that he had received a bribe of £170,000 to perform them.
At first instance, Morgan J had found that, by application of an objective test, that an honest and reasonable person in Mr Landman’s position, and knowing the facts which he did, would have concluded that Mr Nobre was not entitled to the €100 million, but did not find this sufficient to fix him with liability for dishonest assistance.
Issue 2: Causation
Morgan J found that Mr Louanjli’s interventions, by which he encouraged Notable to consider that Mr Nobre was a reliable individual who was entitled to deal with the €100 million as his own, clearly did assist Larn to commit a breach of trust. Mr Louanjli and the Bank argued that the Judge ought to have found that Mr Landman’s actions were the cause of Group Seven’s losses, which therefore amounted to a break in causation. This meant that Mr Louanjli’s actions were merely part of the history of events. In effect, the actions of Mr Landman should be considered a novus actus interveniens which exculpated Mr Louanjli and the Bank from any liability for the wrongful payment of these sums. The Respondents opposed these arguments, and sought to uphold Morgan J’s decision.
Issue 3: Various Liability
At trial Morgan J found that the Bank was vicariously liable for Mr Louanjli’s wrongdoing.
He found that an employer’s vicarious liability for the wrongdoing of an employee is not confined to wrongdoing which is within the actual or apparent authority of the employee. All that needs to be established is that the conduct in question was sufficiently closely connected with the work which the employee was authorised to do so that the conduct should be regarded as within the scope of the employee’s employment and so that the employer should be held liable for it.
In this case, Morgan J found that Mr Louanjli’s position at LLB was central to the statements which he made. Notable wished to hear from Mr Louanjli because of his role as the relevant relationship manager at LLB. Statements made by Mr Louanjli, ostensibly as a relationship manager of LLB, at the request of the person in respect of whom he was the relationship manager, were sufficiently closely connected with the scope of his employment by LLB as to make it just for LLB to be liable for those statements and Mr Louanjli’s wrongdoing, even though Mr Louanjli was acting in his own interests and was dishonest.
The Bank appealed against this decision. Their arguments were based upon various documents showing the particular nature of his employment and expert evidence regarding Swiss banking law. Along with the judge’s factual findings, these showed that Mr Louanjli was engaged in a frolic of his own and it was wrong to find the Bank vicariously liable
Held:
1) On the issue of whether Mr Landman and Notable were liable for dishonest assistance in a breach of trust, the appeals of Group Seven, Equity Trading Systems and the Bank were allowed, and Mr Landman and Notable were therefore found liable.
2) The touchstone of accessory liability for breach of trust or fiduciary duty is dishonesty. The court must appraise this on an objective basis, by asking whether the defendant’s conduct was honest or dishonest according to the standards of ordinary decent people.
3) Based upon the Judge’s unchallenged findings of fact, he erred by applying a compartmentalised approach. He ought to have found that Mr Landman must have had blind-eye knowledge that the €100 million was not beneficially owned by Larn, and that the money was not at Larn’s free disposal.
4) On the issue of causation, the appeals of Mr Louanjli and the Bank were dismissed. There was no reason to introduce common law concepts of causation into this area of law. All that is necessary is to show that the conduct assisted in the breach of trust, and the loss directly resulted from the breach of trust. Both elements were satisfied in this case.
5) The Bank’s appeal regarding its vicarious liability for Mr Louanjli’s conduct was also dismissed. The imposition of vicarious liability is an extremely fact sensitive exercise. Despite the fact that Mr Louanjli was pursuing his own interests and was not seeking to benefit LLB, he was not on a ”frolic of his own”. His conduct was within the nature of his job, viewed broadly, and that there was sufficient connection between the position in which he was employed and his wrongful conduct to make it right for LLB to be held liable under the principle of social justice.
6) Obiter: In a case of alleged dishonest assistance, the relevant breach of trust and the relevant acts of assistance will always have to be pleaded and proved. It is in that context that the question whether the defendant acted dishonestly will have to be considered, having regard to the totality of the defendant’s actual knowledge, blind-eye knowledge, and subjective beliefs falling short of blind-eye knowledge. The extent of the defendant’s knowledge and beliefs, and their relationship both with the underlying trust and with the acts of assistance relied upon, will always be highly material matters for the court to consider, and the more tenuous the connection, the less likely it is that the objective standard of dishonesty will be met. Knowledge falling far short of detailed knowledge of the specific breach of trust may suffice to ground liability.
JUDGMENT Lord Justice Henderson, Lord Justice Peter Jackson and Lady Justice Asplin: [1] This is the judgment of the court to which each of its members has contributed. INTRODUCTION AND OVERVIEW [2] These appeals concern the scope of liability for dishonest assistance in a breach of trust and for vicarious liability in such circumstances. The …Continue reading "Group Seven Ltd & anr v Notable Services LLP & anr [2019] WTLR 803"